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21 February, 09:50

Kendall borrowed $782,000 on a construction loan at 10% interest on January 1, 2021. This loan was outstanding throughout the construction period. The company had $4,660,000 in 7% bonds payable outstanding in 2021 and 2022. Interest (using the weighted-average method) capitalized for 2021 was:

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  1. 21 February, 10:18
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    Missing information:

    Payments made during 2021:

    January 1, $200,000 September 30, $300,000 December 31, $300,000

    Answer:

    $20,435.50

    Explanation:

    the weighted average method for calculating interest expense calculates weighted interest rates based on the interest expense of more than one outstanding debt:

    $782,000 x 10% = $78,200 $4,660,000 x 7% = $326,200 total interest expense = $404,400

    weighted interest rate = $404,400 / ($782,000 + $4,660,000) = 7.4311%

    average accumulated expenditure:

    January 1: $200,000 x 12/12 = $200,000

    September 30: $300,000 x 3/12 = $75,000

    December 31: $300,000 x 0/12 = $0

    total = $275,000

    interest expense = $275,000 x 7.4311% = $20,435.50
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